Seven Tax Deductions That Set Off Alarms

Comstock/Thinkstock(NEW YORK) — With only one day before the Internal Revenue Service’s April 17 deadline, here’s a look at a range of common and uncommon tax loopholes that, depending on your career, border on gray to you, but to auditors can come across as flashing red lights:

Guard Dogs

If you have certified guard dogs for your business, they may be deductible. Philadelphia tax attorney Kelly Phillips Erb said they can’t be “junkyard dogs” to be deductible.

Similarly, private jets that are purchased for security reasons could be deductible for corporations, and not just if they offer convenience or comfort, Erb said.

Gambling

Casual gamblers may not realize they can deduct their gambling losses as professional gamblers do. There are some things to note, however, said Erb.

First, you may deduct gambling losses only if you itemize deductions, which Erb said is only a third of tax filers.

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos, cash winnings and the fair market value of prizes like cars and trips.

Second, the amount of losses you deduct can’t exceed the amount of gambling income reported on your return. That rule doesn’t apply to professional gamblers.

“If it’s your real job and you lose money, then you can deduct those losses,” she said. “But if you’re just a casual gambler, you’re out of luck if you always lose.”

Home Office Costs

“You could find a million things for home offices that people can wrongly think they can deduct,” Erb said. But unless your home office is your primary place of business, auditors will take note if you deduct for related costs.

Many people treat their kitchen table or living room as their home office or home office storage area, but it’s often not a primary place of work.

“If you choose to work from home because you want to, that doesn’t create a home office,” Erb said.

Clothing

Ted Schwartz, president and chief investment officer of Capstone Investment Financial Group and ABC News personal finance columnist, said he once had a client who was a professional wrestler who tried to deduct formal clothing he wore for interviews or other public appearances. His reasoning was that he would never wear suits unless for work.

“I told him, ‘if you have a wrestling uniform, that’s an expense,’ but clothing is not,” Schwartz said.

Erb has a friend who works at a high-end retail store and is required to wear acceptable, nice clothing. She wanted to deduct for the costs, which were significant on her budget, because said she said she would not wear that clothing of her own volition.

“She would never wear that clothing outside of work, but the IRS doesn’t care,” she said.

Legal Expenses

Certain personal legal expenses could be deductible to a degree, said Erb.

“Sometimes you can write off legal expenses if they are related to producing income,” she said.

Writing off tax services from a divorce attorney could be deductible. Writing off legal services related to a custody battle would probably not be.

Travel and Entertainment

Writing off travel and entertainment expenses is considered “low-hanging fruit” for auditors.

Mixing business with pleasure usually means a meal or trip is not deductible, said Erb.

“I’ve had a lot of folks who try to claim related expenses, which is where the fraud tends to be,” she said.

Diet and Fitness Costs

While health and diet expenses that are prescribed by a physician can be deductible, advice from a doctor will not support an expense you try to write off.

“Dieters will say their doctor instructed them to lose weight,” Erb said. “Or they try to deduct a club membership because the doctor said to exercise more. Those are only deductible if they are prescribed. Not if a doctor just told them to do something.”﻿